Issuance of Show Cause Notice is mandatory before recovering Interest on GST

Petitioner: Godavari Commodities Ltd

Respondents: Union of India, Deputy Commissioner & Superintendent, CGST

Authority: Ranchi High Court

Date: 3rd December 2019

Case: The petitioner was served with an intimation for payment of Rs 11,58,643/- as interest for not depositing the tax within time and to submit the payment details within three days of the date of receipt of the letter. The bank account of the petitioner was freezed and after the payment was made, the bank account was de-freezed.

Core Issue: Whether the action of the Respondent is illegal by not serving show cause notice before issuing the letter and whether provisions of Section 73(1) in relation to tax not paid shall apply?

Court’s Observation:

1. A plain reading of Section 73(1) shows that this provision is applicable in cases where tax has not been paid for reasons other than fraud.

2. Since tax was not paid by the petitioner company within the due date; it is a case of tax not been paid and accordingly provisions of Section 73(1) shall apply and it is mandatory to issue Show cause Notice and adjudicate the matter.

3. Even otherwise, before taking any penal action, irrespective of the fact that whether there is any provision in law or not, the principles of natural justice should be followed.

4. Therefore, the letter issued for payment of interest is treated as Show cause Notice u/s 73(1) and the matter shall be adjudicated. If upon adjudication it is found that the petitioner was not liable to pay the interest, it shall be refunded with statutory interest thereon.

Judgement: Provisions of Section 73(1) shall be applicable since tax was not paid within due date. The Court directed the adjudicating authority to pass the Order within 3 months of the date of Court’s Order.